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Financial Peace: Week 4

Thoughts from the zero budget lesson:
A zero budget is HARD! We’ve still got a week and a half left and we’re still on track, but it’s getting close. I never realized how many “things” pop up. A friend wants to go to lunch, a group gift, a trip to Wal-Mart, a bachelor party, and on-and-on. Things pop up and things add up. It’s going to take a lot of prep work at the beginning of the month to plan out different ways we’re going to spend money. But, I’m glad we’re doing it!

This week…

This week’s lesson was Dumping Debt. I was excited to hear this week’s lesson because I want to get rid of our car payment. (In Dave Ramsey’s steps, debt doesn’t include your mortgage.) Dave talked about a lot of stuff that I already knew about – loaning money to other’s can lead to strain on the relationship, credit card companies make a lot of money off of people, playing the lottery isn’t a wise decision, and banks make a lot of money off of people.

The most important take-away I had from the class was that banks do a great job marketing. You’d think I would have noticed that since I work in the marketing field. But, I had never realized that banks are marketing their products. Sure, I knew that’s what credit card companies were doing with all of their direct mail pieces. But, the housing market? Major marketing campaign! The car industry? Not just dealerships that are marketing us. What a great industry to be in. Society does a lot of the work for them! I grew up only knowing that when you buy a house you have to go to the bank and get your credit approved. When we were planning a wedding, we went into the bank and sat and waited while they ran our credit. We held our breath while they checked to see how much money they would loan us. We were excited once they told us. Wow, they didn’t have to come find us; we walked in and told them we wanted to give them our money. For the next 30 years. The.Next.THIRTY.Years. What a great business to be in! A few months later, we walked out with a 30-year mortgage. In that mortgage, we saw how much we’d be paying in interest over the life of the loan. Bryan was sick to his stomach about it. Our realtor told him not to look at that number. Ignore it, she said. It’ll only make you feel worse. And, buyer’s remorse is completely normal for the next few days. So, since that’s the norm and the rest of society is doing it, hang tight. {I realize that I may sound like a hypocrite because we bought an expensive house. I’m not saying I regret it. At this point in the lessons, I’m not sure I would have done it differently. I just realize that the banks have the upper hand and we help them keep it there.}

So, while we can decide to make extra payments on our mortgage to get rid of it quicker, there are also other ways to be smart about debt. We can pay off our car as quickly as possible, by focusing all of our extra money into it. And we can start saving for another car so next time around we can pay for it in CASH! Does this seem reasonable to you? Here’s why it is to me. We wouldn’t be buying a new car because it loses 70% of its value the first four years. {I did know that it wasn’t a good deal to do this, but I never realized it was that drastic!} So, instead we’d buy a nice, used car for a more reasonable price. What if you want a brand new car? Well, if you’ve got the money in the bank, then it’s a good deal for you because you can afford it! It’s not a good deal to give banks or car dealerships even more of our money. We already know they markup the price of a car. To add more interest on top of that isn’t a good deal for us. It makes the car more than we thought we paid for it. I’m so excited and fired up to pay off our car! Before we took the class, we wanted to pay it off in the next year so we could use that extra money to save up. Except, before the class we were thinking about the fantasy world of saving up that money for another car. But, we talked about using it to put down a good chunk on the car or just getting into the routine of always paying that out for a car payment. We weren’t thinking about using it to save up for the entire purchase of a car! Because, without Dave, we probably wouldn’t really be able to do it.

We can stop giving credit cards our business. Studies show that people spend 12-18% more when they use a credit card instead of cash. I don’t have a hard time believing this. When you use a credit card you don’t have a clear vision of how much money is being taken from you. If you have cash, you might be more likely to hold on to it because it’s tangible. The same goes for debit cards. I know this to be true for me because over the years I’ve spent less time balancing my checkbook and more time swiping my card. I play catch up when I sit down to do the bills. I’m looking forward to the new system! I look forward to not putting anything on a credit card and spending in real-time. My old philosophy was to put things like gas or “extras” on the credit card. I put day-to-day living expenses on the debit card. That gave me a false image of how much money we had. Instead, I’ll keep it all in real-time so I can see it all coming and going. I’m looking forward to class next week because we’re going to cut up credit cards! I’m looking forward to taking the “plunge” and breaking up with VISA.

Four weeks in and I look forward to all the other things Dave will teach us. A lot of it is common sense, but that doesn’t mean it isn’t useful information. I’m excited about taking control of our finances and making them work for us instead of falling victim to them!